NetApp's Multiple Has Room For Downside In Current Cloud Business Digestion Period, Analyst Says

Morgan Stanley analyst Meta Marshall downgraded NetApp Inc NTAP from Equal-Weight to Underweight and lowered the price target from $66 to $58.
The re-rating reflected the analyst's view that NTAP's multiple has room for downside in the current period of cloud business digestion, which had been the driver of premium in the name.
NetApp reported a disappointing outlook for their premise and cloud businesses on their Q2 earnings last month.
NTAP began to see negative estimate revisions following a recovery in IT spending post-COVID.
The company saw sweating of premise assets and digestion on the cloud business.
Company commentary from the most recent NASDAQ conference noted that this digestion period would likely be multi-quarter.
The commentary made the analyst more unsure that estimate revisions were complete, particularly given the more challenging visibility NTAP has to this portion of the business.
The combination of estimates was more at risk of near-term revisions and underperformance of the asset, putting the name at risk of underperformance over the next 12 months.
Valuation has compressed, but re-rating likely requires better confidence in estimates.
PCS business is a key value driver, but the trajectory remains unknown heading into the potential cloud digestion period.
Price Action: NTAP shares traded lower by 0.51% at $64.96 on the last check Tuesday.
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